GULER STICKS TO TURKEY FIRST FORMULA FOR CASPIAN

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001681

SIPDIS

EEB FOR A/S SULLIVAN
SPECIAL ENVOY FOR EURASIAN ENERGY GRAY
EEB FOR ENERGY COORDINATOR MANN
EUR FOR DAS BRYZA

E.O. 12958: DECL: 09/22/2018
TAGS: ENRG EPET TU IZ
SUBJECT: GULER STICKS TO TURKEY FIRST FORMULA FOR CASPIAN
GAS

REF: ANKARA 1641

Classified By: DCM Doug Silliman for reasons 1.4 (B) and (D)


1. (C) Summary. Special Envoy for Eurasian Energy C. Boyden
Gray and Deputy Assistant Secretary Matt Bryza discussed
Caspian and Iraqi gas with Energy Minister Hilmi Guler during
a September 15 meeting. Guler asked for U.S. support for a
northern export route for Iraqi gas to Turkey and Europe.
Guler suggested looking only to Iraqi gas for the Southern
Corridor, leaving Azeri gas for Turkey, but Bryza and Gray
rejected this idea. Gray said now is the time for Turkey to
strike a compromise with Azerbaijan whereby Turkey could get
some new gas and enough gas would be left for a Europe
pipeline. Gray warned that Azerbaijan will not develop its
gas without an outlet to Europe and offered U.S. help to
finance or support alternative ways for Turkey meet its
energy demand, such as coal power plants, renewables or
conservation. End summary.


2. (C) Gray told Guler that we understand Turkey's energy
needs and are ready to help alleviate Turkey's projected
electricity shortages by providing financing or other support
to non-gas fired power generation. Guler also showed
interest and asked whether the U.S. and Turkey could work
together on LNG. Energy Undersecretary U/S Cimen was
skeptical that the USG could "guarantee U.S. private sector
investment in Turkey."


3. (C) Turning to Caspian gas, Bryza said the crisis in
Georgia has focused USG attention at the highest levels on
getting diversified gas sources and routes to Europe but
Washington is frustrated with the lack of progress on a deal
between Azerbaijan and Turkey. It is possible that the
change of administration will mean at least some loss of
focus.


4. (C) Minister Guler asserted that Azerbaijan is not
interested in sending large quantities of gas to Europe. He
suggested we should not count on Shah Deniz Phase II (SD II)
gas production for the Southern Corridor (thereby leaving it
all to Turkey) and focus efforts on getting Iraqi, Turkmen or
other gas for Europe. Gray and Bryza strongly disagreed.
Bryza said this would amount to abandoning our vision for SD
II gas to Europe. We gave our word to the Azeris that we
would help them build ties to Europe and we must honor our
commitment. Additionally, Gray said that President Aliev has
told him that Azerbaijan will not develop the gas without an
outlet to Europe. Gray also noted that the cost of
liquefying natural gas is dropping steadily, and that LNG
will be competitive with pipelines within a few years. If
this happens and Turkey has not built a pipeline
infrastructure to Europe, gas might simply "sail around
Turkey."


5. (C) A discussion then ensued of how the 10-11 bcm of SD
II gas for export could be divided between Turkey and Europe.
Gray said our goal is to provide enough Azeri gas to Europe
to make one project viable and that the USG didn't want to
pick market winners and losers for the Southern Corridor.
Gray pressed Guler to accept 4 bcm for Turkey and leave at
least 6 bcm for Europe. Guler said he doubted any pipeline
could be built with only 6 bcm; however he said if 6 bcm is
indeed the break-even point, perhaps for the
Turkey-Greece-Italy pipeline, he would consider Gray's offer.
BOTAS Chairman and others questioned whether 6 bcm would be
able to meet Greek and Italian demand and expressed concern
that Turkey might be pursuing a losing strategy of supporting
TGI while the Europeans prefer Nabucco.


6. (C) Guler warned that sending Iraqi gas through the Arab
Gas Pipeline (AGP) would eventually pull gas to Syria and
Egypt rather than to Europe (reftel). He asked for U.S.
support for building a northern export route from Iraq
directly to Turkey and to the Mediterranean Sea. Guler
suggested such a pipeline would create a win-win-win: Turkey
would get gas from Iraq, Iraqi gas could be exported to
Europe via Turkey and Turkey would re-export gas to Syria.

ANKARA 00001681 002 OF 002




7. (C) Guler said his September 1-2 meetings with
Berdimuhamedov were positive. Berdimuhamedov wants two
things: pipeline security and Caspian delimitation. Turkey
is working as an intermediary between Azerbaijan and
Turkmenistan and has achieved some progress on the disputed
Serdar-Kapaz off-shore field. It is also working quietly to
connect Turkmen and Azeri off-shore gas platforms. To help
meet its own electricity demand, Turkey is considering a
project to use Turkmen gas to generate electricity in
Turkmenistan and then export it to Turkey, despite load loss
of 3-5%.


8. (U) This cable was cleared by SE Gray and DAS Bryza.

Visit Ankara's Classified Web Site at
http://www.intelink.sgov.gov/wiki/Portal:Turk ey

WILSON